Pignanelli and Webb: Tax reform is going to make a hot Utah summer sizzle

One of the most controversial, and unfinished, issues in the 2019 legislative session was a proposal to collect sales taxes on professional services and other industries. Lawmakers committed to study the matter through the summer, along with other structural reforms in the tax system, and then convene a special session in the fall. Shockingly, tax policy is political! We review the implications of tax reform.

Toward the end of the legislative session, many Utahns and numerous organizations contacted lawmakers to express concern over proposed sales tax expansion. Will the uproar over tax reform have any political fallout in the 2020 elections?

Pignanelli: “Taxation with representation ain’t so hot either.” — Gerald Barzan

The state sales tax was implemented in 1933 for “emergency purposes” and to be terminated April 1, 1935. (I will graciously avoid snide comments.) Utah’s sales tax has been contentious ever since.

In 1987 (my first session as a legislator), Utah was in economic straits and the sales tax was increased to cover basic government services. This resulted in massive demonstrations at the Capitol, a referendum and the near destruction of political careers for lawmakers and the governor, while serving as a launching pad for high-profile protesters.

The recent proposal would have impacted almost every Utah professional, yet no politico publicly led the opposition. Social media served as the source and inspiration of protesting, indicating a new trend.

An election year is approaching and all candidates for state office (especially gubernatorial contenders) soon will be articulating a position on tax reform of whether sales tax should be applied to professional services or restructuring through another alternative. These dynamics will determine any ramifications from the recent session, or if a new method alters reaction from taxpayers.

Once again the 1933 “temporary” tax is driving Utah politics.

Webb: Lawmakers should be commended, not punished, for promoting structural tax reform. Please remember they aren’t proposing a tax hike. They are trying to make the tax system fairer for everyone by reducing overall sales tax rates while spreading the burden over a broader base.

That’s a very difficult thing to do because every impacted business will squeal. But, as I’ve written before, why should we tax a hammer a carpenter buys at Home Depot but not a haircut? Or an Uber ride? Thousands of businesses charge sales tax and pass it on to consumers and they do just fine.

Certainly, this is complicated. Lawmakers want to avoid double taxation that can occur when a product or service is taxed at different levels of business transactions. In some cases, collecting the tax isn’t worth the effort.

I’m confident legislators and the Herbert administration will use common sense and be fair in this effort. If they fail, then funding for basic state services like education, prisons, Medicaid and law enforcement are at risk.

While devious election opponents may attempt to exploit this issue, no one should lose an election over it.

After failing to deliver comprehensive tax reform in the session earlier this year, will lawmakers be able to forge a consensus among the many interest groups to pass something in a special session in the fall?

Pignanelli: Much is owed to Rep. Tim Quinn who bravely sponsored the controversial legislation, enduring many slings and arrows. By raising the specter of a potential sales tax on services, he advanced important discussions of alternatives to structural reform that would not have occurred otherwise. These include amending the Constitution to allow income tax for noneducation purposes, enhancing the statewide property tax, assessing online streaming, etc. Exploring these solutions will occur, as the practical and political issues to broadening the sales tax base to services will foster heated deliberations.

The Utah tradition of a well-managed state will continue, as lawmakers ultimately fashion a solution with minimal impact upon business operations.

Webb: Legislative leaders and staff are refining their tax reform proposal, while lawmakers, political parties, chambers of commerce, other business associations and various interest groups are holding meetings, hearings and seminars to explain, educate and receive feedback. I hope they’re also outlining the consequences of not acting.

Certainly, opponents are also gearing up to fight taxes on their business or industry. By the time the special session is held in the fall, everyone should be fully educated. The battle lines will be drawn, and lawmakers should be ready to vote.

Nearly everyone agrees that tax reform is needed to correct structural imbalances in the current system. Why is it so hard to enact meaningful reform?

Pignanelli: "Tax reform" is just a kind term for the statutory creation of winners and losers. Taxpayers despise additional expenses and administrative burdens. Thus, citizens exercise a constitutional right to express these concerns to officials, always with strong emotions.

Webb: This issue is a lobbyist full-employment act (nice for Frank). Every lobbyist in town is fighting some aspect of tax reform, far outnumbering proponents of broadening the base. So let’s just tax the lobbyists. We could balance the budget, raise teacher salaries and pay cash for the new prison.